SGST, CGST and IGST – What They Mean, How They Differ & Their Challenges

As a taxpayer or business owner in India, you often encounter different terms under the umbrella of GST – like SGST, CGST, and IGST. Understanding these concepts isn’t just helpful but also essential to stay compliant, avoid penalties, and manage your finances efficiently. In this blog, you will get a clear picture of what these taxes mean, how they differ, and the real-word challenges businesses face during implementation. Read on!

What is GST Tax?

The Goods and Services Tax (GST) is a unified indirect tax system introduced in India on 1st July 2017. It replaced multiple cascading taxes levied by the central and state governments. It aims to create a single, nationwide market by subsuming indirect taxes like VAT, service tax, excise duty, etc.

Understanding the Components of GST Tax

GST is structured into 3 main components based on the nature of the transaction:

1. SGST – State Goods and Services Tax

It is levied by the state government on intra-state transactions (within the same state). Half of the GST collected from the buyer goes to the state’s revenue.

For example, if you’re selling products in Maharashtra and your buyer is also in the same place, you will charge both CGST and SGST on the invoice.

2. CGST – Central Goods and Services Tax

It is imposed by the central government on the same intra-state supply of goods and services. It works alongside SGST – both are charged equally on a simple transaction.

3. IGST – Integrated Goods and Services Tax

It is applicable to inter-state transactions (between two different states) and on imports and exports. It’s collected by the central government and later divided between the centre and the destination state.

Difference Between IGST, CGST and SGST

Challenges in Implementation of IGST, CGST and SGST

Although, GST aimed to streamline India’s tax structure, businesses often face practical hurdles. Here are a few common challenges:

• Lack of Awareness Among MSMEs: Many small and medium enterprises still struggle to understand the nitty-gritty of IGST, CGST, and SGST, leading to penalties.
• Technology Dependence: Filing returns and reconciling tax credits require good internet connectivity and digital know-how. Errors in GSTIN entry or e-invoice generation can disrupt operations.
• Delayed Refunds: Exporters and businesses claiming input credits under IGST often experience delayed refunds, impacting on working capital.
• Complex Compliance Process: You need to file multiple returns monthly. Mismatches in invoices between vendors and buyers delay inputting tax credits.   

To Conclude

Understanding the distinctions between SGST, CGST, and IGST is crucial if you’re running a business in India or planning to start one. These components form the backbone of the GST tax system , which was designed to simplify indirect taxation, ensure seamless input credit flow, and bring uniformity across states. While SGST and CGST apply to transactions within a single state, IGST governs transactions that cross state borders including imports. Therefore, the key lies in determining the nature of your transaction and applying the correct GST structure to avoid penalties or input tax mismatches.

Frequently Asked Questions

1. What are the common challenges businesses face with GST compliance?

Challenges include lack of awareness, technological dependency, delayed refunds, and complex return filing processes.

2. What happens if I incorrectly apply CGST/SGST instead of IGST?

Incorrect tax application can lead to penalties, interest, and denial of input tax credit. It’s crucial to determine the nature of the transaction correctly.

3. How can small businesses stay compliant with GST rules?

They should invest in reliable accounting software, stay updated with GST notifications, and consider consulting a tax professional for guidance.

4. Are exports subject to GST?

Exports are considered zero-rated under GST. Exporters can claim refunds on input taxes paid under IGST.